In a major corrective to what it decries as the overuse of incorporation by reference and judicial notice to place a pile of documents before the district court on a motion to dismiss—particularly in SEC fraud cases in which plaintiffs already bear a heavy burden that is difficult to meet before discovery—this decision seeks to rein in both doctrines.  As to judicial notice, the decision notes that the district court must be careful about the facts that it takes from documents that are properly subject to judicial notice.  The SEC-filed transcript of an investor call could be noticed, but not whether it adequately disclosed disappointing test results since the transcript was ambiguous regarding the status of the test.  Similarly, an official government report was noticeable, but it did not disclose where critical information in the report came from and so could not demonstrate that the defendants made early disclosure of the test results.  As to incorporation by reference, the decision holds that to be subject to the doctrine, the document must be mentioned “extensively,” not just once, in the complaint and must be a significant basis of the claims the complaint alleges.  It is not enough that the document supports a defense to the alleged claim.

Ninth Circuit Court of Appeals (Tashima, J.); August 13, 2018; 2018 U.S. App. LEXIS 22371